Author: Jeffrey D. Weslow, Assistant Director, Customer Centric Strategies
If you are a small housing agency considering a Rental Assistance Demonstration (RAD) conversion, this article will provide first-hand insights and advice. The Lavonia Housing Authority, located in Georgia, operates 180 units in three cities with a staff of only four. Rick Whitworth, executive director, tells us about his agency’s portfolio conversion to RAD Project Based Rental Assistance (PRBA), why he made the decision to convert, and shares some of the things he learned along the way.
HAI Group: Why did you get decide to convert to RAD?
Rick Whitworth: Given historic underfunding from Public and Indian Housing (PIH) on the capital fund and operating fund sides, we wanted to take advantage of a 20-year contract on rents plus an annual inflation factor. Plus, some of the PIH regulations were beginning to get very time consuming. Multifamily regulations seemed less onerous and allowed us to operate more entrepreneurially. For a small agency who didn’t need very much in terms of initial capital improvements, success with RAD meant being able to plan ahead years into the future, know what your contract rents are going to be, and knowing if you do find yourself in a situation where you may need additional capital funding that you have options at your disposal. Under PIH, we had to pretty much take whatever the congressional appropriations act approved or in many cases, the continuing resolutions and then somehow make it work. This is hard to do when you are underfunded for a decade or more, and the backlog of capital needs keeps growing.
HAI Group: When did you begin to explore converting to RAD?
Rick Whitworth: From 2015 to 2016, Georgia Association of Housing and Redevelopment Authorities (GAHRA) created a new committee called the RAD/Multifamily Committee. I chaired this committee with Mike Austin, the director of Section 8 housing for Macon Housing Authority. I continue to be an advocate of RAD and support the program’s mission.
HAI Group: Were there unanticipated costs or changes during conversion?
Rick Whitworth: The plan itself didn’t really change. The sources and uses document changed a few times because our funds on hand weren’t as much as I would have liked. We had finished a comprehensive interior remodeling project that took about $880,000 of our funds on hand. That’s a lot of money for a small housing authority. Therefore, our money was tight, but our apartments were in terrific condition. Thus, the upfront capital needs reflected in our capital needs assessment were minimal. No unanticipated costs come to mind. I think we pretty much covered everything. However, remember that ours was a small deal with no loan. Had we needed to borrow money, I’m sure there would have been costs associated with a development and loan deal that we would not have anticipated because we don’t have experience in development deals. So, I think my answer would be to research the different types of loans and the costs associated with each. But the answer for each agency will be different depending on the size and structure of the deal that they are looking at.
HAI Group: Did you have any doubts about RAD?
Rick Whitworth: Absolutely none. If I had to do it all over again, I would. I really never had any doubts throughout the process. We looked at every milestone and every circumstance we were presented with and moved forward cautiously, but never pessimistically. Of course, each individual agency will have a different set of circumstances that will determine whether RAD is right for them.
HAI Group: What was the most frustrating part of the process?
Rick Whitworth: About a month before the closing was pretty frustrating. Everything you’ve done over the last 11 months begins to come together. As more and different departments are getting involved to prepare for the closing, more issues have to be resolved prior to closing, i.e., deeds, Declarations of Trust (DOTs), legal issues, non-dwelling buildings, etc. Frustrating—yes. Is this normal frustration just before any major real estate closing? Absolutely. I will stop short of saying it was all smooth sailing but the entire process was a very good learning experience, and the Department of Housing and Urban Development (HUD) folks were very helpful.
HAI Group: What kind of help/assistance would have been good prior to the project?
Rick Whitworth: I think HUD has done a marvelous job at streamlining the milestones from when we converted in 2014. Fortunately, we had a number of other Georgia housing authorities who converted prior to us, so we had some good resources to draw advice from.
HAI Group: What advice would you have for someone undergoing a conversion?
Rick Whitworth: I would advise public housing authorities (PHAs) to be as proactive as possible. Have your counsel update the DOT and make sure they are accurate. It’s a good opportunity to look at property lines and make sure they are clearly marked. Many DOTs, deeds, property descriptions, etc. were done decades ago and may have changed, which means they need to be cleared up prior to closing. Neighboring property owners change and may have encroached, for example. Just prior to closing, you may see problems you didn’t even know you had! These will all have to be cleared up before closing. Luckily, we didn’t have to borrow money but if so, training on which type of loan or tax credits would have been beneficial.
HAI Group: What impact did the conversion have on staff?
Rick Whitworth: We converted our entire portfolio. Staff made the transition from PIH to multifamily very well. Luckily, we have good resources in other housing authorities who had already converted some RAD properties. Macon Housing Authority has been an invaluable resource to us. They provided statewide trainings on the conversion process and a multifamily handbook. Several other small PHA’s, Jasper and Eatonton, converted around the same time as Lavonia, so we all helped each other. The reduction of PIH regulations allowed staff to have more time to focus on the day-to-day work and have additional time to learn the multifamily way of doing business.
HAI Group: What concerns were expressed by staff? How did they feel about the transition?
Rick Whitworth: Staff was excited to make the change from PIH to multifamily. There are many benefits to having a standardized lease used in all multifamily properties across the country. Although there are several parts of the multifamily lease that are less desirable than our previous PIH lease, the standardized lease is used all across the country, and we feel the benefits far outweigh the negatives. There are also a number of onerous PIH regulations that we felt did not accomplish the intended results. There are private owners and investment partners as well as quasi-governmental agencies administering multifamily housing assistance, and we feel the regulations seem to be more streamlined which is a great help especially to a small agency such as ours.
HAI Group: What impact did the change have on the culture of the organization?
Rick Whitworth: One of the changes we made was to restructure ourselves to operate more like a small business that operates under certain federal regulations. Keeping the regulations in mind, we ask ourselves “how would I operate if this were my business.” We feel that making the conversion to multifamily has created an environment more like a developer or property manager and thus, more responsible and accountable for making wise business decisions. We now have public and private resources available that were not available in PIH. Therefore, we have more of an opportunity to succeed in the marketplace.
HAI Group: What did the residents think of the conversion? How did you communicate with them?
Rick Whitworth: We operate in three small cities about 20 minutes apart. We held the required three meetings (in each city, so we actually had nine meetings with residents) at central locations in all three cities. We sent dozens of letters as we moved through the year long process. As we made progress, we advised the residents where we were, what they could expect next and how it would affect them. We tried to encourage them that they would be well taken care of and this conversion didn’t really change a whole lot of things as far as their housing assistance was concerned. We are still here for them, and we still offer safe, clean, and well maintained income based rental units.
HAI Group: Did you face any relocation issues?
Rick Whitworth: In terms of initial repairs, we didn’t face any relocation issues. Our units were in good condition, so the upfront repairs were minimal and didn’t require relocation. We installed new hard wired smoke detectors. Our previous ones were old and had been added on to over the years. The news ones were up to multifamily standards which are somewhat different than PIH. We also installed carbon monoxide detectors in each unit.
HAI Group: Thanks for sharing this information with our readers, Rick.
Rick Whitworth: Happy to share what we’ve learned.